Markets have a language all their own and within that language, forex has its own dialect. Here are some terms we commonly use in our commentary. If you would like to see additional terms defined, e-mail info forexlive. Another way of referring to easy or easier monetary policy, often used as a code word by central bankers.
An international organization which fosters monetary and financial cooperation and serves as a bank for central banks. The BIS often acts as an agent in the forex market, allowing central banks to mask their identity in an attempt to dampen market impact. A type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer.
It can also be a knock-in, meaning it has no value until the underlying reaches a certain price. Originates from the use of transatlantic cables to transact currency deals years ago. A method of charting price action. The subject of multitudes of books and the preferred method of charting at ForexLive. The treasury departments of large multinational corporations. They are responsible for hedging the forex exposures of their firms, which can have dramatic impacts on earnings for firms with large overseas sales.
For example, a company like Airbus has massive revenues in dollars but has most of its cost base in euros. They must hedge their currency exposures to try and offset this mis-match.
A bank which holds securities in custody for other financial institutions, does their bookkeeping and settles their trading activity. Also know as custodians. The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative.
Refers to monetary policy tending towards lower interest rates. Monetary authorities a central bank will want easy monetary policies lower interest rates and even perhaps a program like quantitative easing, in order to encourage economic growth. A wholesale electronic trading platform used to trade between interbank dealers. Its like an ECN for banks. A council consisting of the economy and finance ministers of the European Union.
They meet once a month. The provision of liquidity by member national banks of the European System of Central Banks Eurosystem to individual banks. The provision of liquidity is made under exceptional circumstances to illiquid institutions unable to obtain liquidity either in the market or from participation in monetary policy operations shut out by the ECB.
Loans are made against collateral and are at the risk of the national central bank. A eurodollar refers to a US dollar on deposit at banks outside the US. Similarly, eurodollar futures are a very popular interest-rate futures contract. A group of finance ministers of countries who are members of the euro. Is a legal instrument agreed by the 27 member states of the European Union on 9 May , aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty.
To trade counter to. To fade a rumor is to believe it to be untrue and do the opposite of what the rumor would suggest. A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at Forward guidance can take many forms, but, in essence all of them involve a central bank saying, or at least hinting at, what its going to do with monetary policy do before they do it.
There is a more detailed explanation at this post. It consists of 12 members, the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents 9selected on a rotating basis for one-year terms.
Concepts in the options markets are expressed in terms of the Greek alphabet. A short gamma position will become shorter as the price of the underlying asset increases.
As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative. A cultural tradition in Japan of settling accounts on the 5th day of the month and on dates that are multiples of 5, so 5, 10, 15, 20, 25 and Needs to be taken with a grain of salt, markets are not that simple: The Governing Council is the member monetary policy-setting group within the European Central Bank.
When bondholders are forced or voluntarily take a worse deal than the one outlined in the bond covenant. A stock market technical indicator when two trading days within 30 days of each other where, on the same day, week moving average is rising, new highs are greater than 2. Ichimoku Kinko Hyo A series of technical indicators packaged together and overlaid on a candlestick or bar chart to form the Ichimoku chart.
Popularly used for yen crosses. This is the exchange where the bulk of the currency futures trading takes place worldwide. Net positions on the exchange are compiled each week and reported in the Commitments of Traders report on Friday afternoons. The bank-to-bank market in foreign exchange.
Banks can deal directly with each other in currencies, most often over the phone, or through EBS or Reuters Dealing. Bank A is then free to transact a deal on the shown bid or offer, or to pass and not deal. A trader who buys and sells, often frequently, to seize short-term market opportunity. Can be intraday or over a couple of days. Nickname for the Canadian dollar.
A twonie, of course! Long-term collateralized loans extended by the ECB to member banks. Terms have ranged from 3 months up to 3-years. What an interbank dealer will say to a counterparty or voice broker when he or she wants to buy.
Hedge fund which uses some form of quantitative model to initiate and liquidate trades. The most familiar type of funds are trend-followers like J.
Many of these funds trade at set times during the day, often at 10 am New York time. Monetary Policy Committee of the Bank of England, which meets once a month to decide on the official interest rate in the UK. A collective term that originally applied to Japanese housewife speculators, but is now used to refer to Japanese retail margin FX traders.
They can be a powerful force. The ECB program introduced in August to directly buy government bonds in the secondary market.
Can only be used after a government asks for financial assistance. A monetary policy operation last used in the early s in which the Fed sold shorter-dated Treasuries from their portfolio and purchased longer-dated maturities in order to drive down long-term interest rates.
The standard expiry time is 10 am New York. Mostly vanilla contracts see vanilla options but also some barrier option interest too see barrier options.
Want to know how to trade the order board? Key reversals are outside days at either trend highs or trend lows. On equal footing, in Latin. Refers to bond holders having equal rights in the event of a debt restructuring. To transact a deal on the offered price, i.
The most basic option type with a simple expiration date and strike price with no additional features. Firms which allow clients like hedge funds to use their credit facilities to access financial markets. A strategy used by central banks once targeting short-term interest rates becomes ineffective because rates have reached zero or close to it. The central bank buys assets, typically government bonds, in an effort to inject money into the economy.
The purchase of asset classes that investors expect to do well in an economic recovery. Commodities, equities and emerging markets are examples. Asset classes to be avoided in a reflationary atmosphere include bonds and low-yielding currencies. The two were recently merged into one by the BOJ. The program in which the ECB purchases government bonds of members states where the market has pushed yields up beyond what the ECB sees as fundamentally justifiable.
The ECB sterilizes the euros added to the monetary system on a weekly basis so as not to impact overall money supply. It is a method of monetary policy transmission. Its the same in the FX market. The space between a bid an offer, eg. In order to get set in a position with no waiting when you simply must be on board NOW it is necessary to cross the spread to pay the offer i. An order which closes out a market position once a certain price level trades in the market. For example, a sell order placed below the market price to protect against accelerating losses.
A fund set up by a country with large foreign exchange reserves to help manage those reserves. Typically SWFs purchase long-term securities to try and enhance investment returns beyond what central banks typically earn holding government debt.
Both are surveys of manufacturing and service companies designed to assess business conditions in Japan. It is thought that the Federal Reserve will begin to slow down its asset purchasing in response to an improving US economy not requiring so much monetary accommodation. This slowing down not stopping of purchases is referred to as tapering. Those things we always seem to be fighting.More...